Sale of Shares Vs Business Sale; Which Is Best?
Buying a business can be an intricate and in-depth process. There are many ways a business can be bought, sold or the ownership divided between several parties. A business sale occurs when a business is sold in full, allowing full ownership to be transferred from the previous owner to the buyer. In cases where the business forms part of a company, the process can become more complicated.
Business Sale: This involves a Business Sale Agreement, where the entire business, it’s assets, intellectual property, lease/freehold and all other business components are sold to the buyer, ownership is transferred and then the buyer owns all parts that allow the business to continue as a “going concern”.
The seller retains ownership of the company together with the current assets (cash, debtors, etc) and liabilities. Thus, the buyer starts a new company having purchased the goodwill, business name, fixed assets and possibly stock of the business.
Share Sale: A share sale is when a shareholder of the company that owns the business being acquired, sells their shares to a prospective buyer. This can range between part ownership or full ownership, depending on how many shares are sold and what the arrangement is. Unlike an asset sale, a share sale will include all the assets and liabilities; therefore, it is extremely important for a buyer to conduct a thorough due diligence to determine all risks associated with the share sale. Liabilities include those currently affecting the business as well as those that could potentially affect the business moving forward e.g. taxes owed to ATO. There are, however, positives to a share sale such as potential tax concessions (i.e capital gains tax) that could prove beneficial to the seller whilst being a smoother transition for the purchaser – as all agreements remain intact as well as the ABN, bank account contracts, leases, etc.
In this type of transaction, the seller can be expected to sign personal warranties regarding any past liability that the purchaser may inherit in the future.
It is vital to understand the taxation and legal risks associated with each type of sale when determining how best to sell your business or company. As always, we highly suggest discussing all components with your Accountant and Solicitor to determine the suitability of your sale path and to understand each process in detail.
If you are planning to sell your business, contact Core Business Brokers today. We will be more than happy to discuss your options, share our thoughts through countless years of experience and assist in any way possible – to make the process as smooth and effective as we can. Contact us on (02) 9413 2977 or email us at [email protected] to begin the conversation today.
